If You Like to Pay with Debit, Read This

You're probably at least vaguely aware that retailers who accept credit or debit cards are charged a "swipe fee" by the banks, the most obvious reminders being stores that require a minimum purchase when you use a card, or places like gas stations that charge less if you pay in cash. What you may not realize is that these fees — typically 1% to 3% of the purchase and averaging 44 cents — cost retailers $50 billion last year. Banks argue the fees cover the transactions, but the Federal Reserve says they cost banks just 4 cents on average (that's right: They're making more than a 1,000% profit).

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A new law is set to go into effect on October 1 that puts restrictions on how much banks can charge for swipe fees on debit-card transactions. What the reform means: Fees levied by banks with more than $10 billion in assets will be limited to around 21 cents. The law doesn't cover credit card fees, which average 2% to 3% of your purchase price. The hope is that the reform will save money for retailers — and by extension, consumers, whom the National Retail Federation estimates pay $427 per household per year to cover these fees.

Unfortunately (and unsurprisingly), the banks don't want — and may not be able to afford — to lose that revenue. The backlash is already evident: Some banks have already begun charging consumers fees for debit-card transactions and have suspended their debit-card rewards programs (those rewards are at least partly funded by swipe fees). The banks may also begin charging retailers higher fees for consumer returns because these are more costly than purchases to process. You'll likely also start seeing more merchants requiring minimum amounts for card purchases.

So what are you as a consumer to do? Check with your bank to see if it is or will be imposing a new fee for debit-card transactions. Typically, this will be a monthly fee of $3 to $5, charged the first time you pay with your debit card that month. If rewards programs are a reason you pay with plastic, you may want to switch back to using your credit card for now. Otherwise, stay tuned.